Key Takeaways
1. Strategic planning often fails to drive effective decisions.
Despite all the time and energy most companies put into strategic planning, the process is most often a barrier to good decision making, our research indicates.
Traditional planning's shortcomings. Many companies invest heavily in strategic planning, yet the process often falls short of its intended purpose. Instead of facilitating effective decision-making, it can become a cumbersome exercise that consumes time and resources without yielding tangible results. This disconnect arises from several factors, including the annual nature of the process, its focus on individual business units, and a lack of clear mechanisms for translating plans into action.
Symptoms of ineffective planning:
- Excessive time commitment
- High-level, abstract discussions
- Disconnection from day-to-day operations
- Limited influence on actual strategy
The need for a new approach. To overcome these limitations, organizations must rethink their approach to strategic planning. They need to move away from rigid, top-down processes and embrace more flexible, iterative approaches that are closely linked to decision-making. This requires a shift in mindset, from viewing planning as an end in itself to seeing it as a means to an end: better, faster, and more effective decisions.
2. Continuous, issues-focused planning is more effective.
As a result, strategic planning doesn’t really influence most companies’ strategy.
A dynamic approach. A more effective approach involves continuous, issues-focused planning. This means identifying the critical issues that the company must address to achieve its strategic goals and then focusing planning efforts on resolving those specific issues. Unlike traditional planning, which is conducted annually and unit by unit, this approach is ongoing and companywide.
Key characteristics:
- Continuous: Strategy is developed and refined throughout the year, not just during a designated planning period.
- Issues-focused: Planning efforts are directed at resolving specific strategic challenges or opportunities.
- Companywide: The process involves multiple business units and functions, fostering collaboration and alignment.
Benefits of continuous planning:
- Greater agility: The company can respond quickly to changing market conditions and emerging opportunities.
- Improved decision-making: Planning efforts are focused on the most critical issues, leading to better-informed decisions.
- Enhanced alignment: The process fosters collaboration and alignment across business units and functions.
3. Link decision-making and planning for better outcomes.
Create a mechanism that helps you identify the decisions you must make to create more shareholder value.
Decision-driven planning. The most effective strategic planning processes are those that are tightly linked to decision-making. This means that the primary goal of planning is to identify the key decisions that the company must make to achieve its strategic objectives. Once those decisions have been identified, the planning process can then be used to develop an implementation roadmap.
A two-step process:
- Identify key decisions: Determine the decisions that are most critical to the company's success.
- Develop implementation plan: Create a detailed plan for executing those decisions.
Boeing's approach. Boeing Commercial Airplanes exemplifies this approach. Executives meet regularly to identify the company's most pressing, long-term strategic issues. Once they have selected a course of action, they update their long-range business plan with an implementation strategy for that decision. By separating—but linking—planning and execution, Boeing makes faster and better decisions.
4. Focus on companywide issues during strategy discussions.
During strategy discussions, focus on issues spanning multiple business units.
Cross-unit collaboration. Strategy discussions should focus on issues that span multiple business units and functions. This encourages collaboration and alignment across the organization, leading to more effective solutions. It also prevents individual units from pursuing strategies that are inconsistent with the overall corporate strategy.
Microsoft's example. Facing a shortage of investment ideas, Microsoft's leaders began defining issues—such as PC market growth and security—that are critical throughout the company. Dialogues between unit leaders and the executive committee now focus on what Microsoft as a whole can do to address each issue—not which strategies individual units should formulate. Countless new growth opportunities have surfaced.
Benefits of a companywide focus:
- Improved alignment: Ensures that all business units are working toward the same goals.
- Enhanced collaboration: Fosters communication and cooperation across functions.
- Greater innovation: Encourages the development of solutions that benefit the entire organization.
5. Develop strategy continuously throughout the year.
Spread strategy reviews throughout the year rather than squeezing them into a two- or three-month window.
Year-round strategy. Instead of confining strategy reviews to a specific time of year, spread them out throughout the year. This allows for a more flexible and responsive approach to planning, enabling the company to address issues as they arise. It also prevents the planning process from becoming a bottleneck that consumes excessive time and resources.
Textron's approach. Executives at multi-industry giant Textron review two to three units' strategy per quarter rather than compressing all unit reviews into one quarter annually. They also hold continuous reviews designed to address each strategic issue on the company's agenda. Once an also-ran among its peers, Textron was a top-quartile performer during 2004–2005.
Advantages of continuous reviews:
- Flexibility: The company can adapt its strategy to changing market conditions.
- Focus: The process allows for a more concentrated effort on individual issues.
- Efficiency: Spreading out the workload reduces the burden on executives.
6. Structure strategy reviews to produce clear results.
Design and conduct strategy sessions so that participants agree on facts related to each issue before proposing solutions.
Fact-based decision-making. Structure strategy reviews to ensure that participants agree on the facts related to each issue before proposing solutions. This helps to avoid unproductive debates based on differing assumptions or interpretations. It also ensures that decisions are grounded in reality, rather than wishful thinking.
Textron's disciplined process. At Textron, each strategic issue is resolved through a disciplined process:
- Agreement on facts: The management committee debates the issue at hand and reaches agreement on the relevant facts.
- Generation of alternatives: The group generates several viable strategy alternatives.
- Evaluation and selection: The committee evaluates the alternatives from a strategic and financial perspective and selects a course of action.
Benefits of a structured approach:
- Improved objectivity: Decisions are based on facts, not opinions.
- Enhanced clarity: Participants have a shared understanding of the issue and the proposed solutions.
- Greater efficiency: The process is more focused and productive.
7. Balance analytical models with human intuition and judgment.
You have to be a quantitative person if you’re managing a company. The quantitative details really matter.
The limits of analytics. While analytical models can be powerful tools for decision-making, they should not be relied on exclusively. Human intuition and judgment are also essential, particularly in situations where data is incomplete or unreliable. It's important to understand the assumptions behind the models and to be aware of their limitations.
Key considerations:
- Model understanding: Managers should not use models they don't understand.
- Assumption clarity: The assumptions underlying the models should be clearly stated.
- Model management: The models should be regularly monitored and updated.
- Human backups: Human decision-makers should be available to override the models when necessary.
The subprime mortgage crisis. The subprime mortgage crisis serves as a cautionary tale about the dangers of relying too heavily on analytical models. Many financial institutions used sophisticated models to assess the risk of subprime loans, but these models failed to account for the possibility of a widespread housing market decline. As a result, these institutions suffered massive losses.
8. Multiple perspectives yield better results.
Decisions, like any other business activity, won’t get better without systematic review.
Diverse viewpoints. To make the best decisions, it's essential to consider multiple perspectives. This means involving people from different backgrounds, functions, and levels of the organization in the decision-making process. It also means actively seeking out dissenting opinions and challenging assumptions.
Benefits of diverse perspectives:
- Broader range of options: Different perspectives can lead to the identification of new and innovative solutions.
- Improved analysis: Diverse viewpoints can help to identify potential flaws in the analysis.
- Greater buy-in: Involving more people in the decision-making process can increase their commitment to the outcome.
Systematic review. Decisions, like any other business activity, won't get better without systematic review. If you don't know which of your decisions are most important, you won't be able to prioritize improvements. If you don't know how decisions are made in your company, you can't change the process for making them. If you don't assess the results of your changes, you're unlikely to achieve better decisions.
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Review Summary
HBR's 10 Must Reads on Making Smart Decisions receives mixed reviews, with an average rating of 3.74/5. Readers appreciate its insights on cognitive biases and organizational decision-making, finding it valuable for business leaders. Some criticize its focus on large companies and dated examples. The book's strengths include practical advice on improving decision processes and avoiding common pitfalls. However, some readers feel it lacks personal decision-making strategies and contains irrelevant content. Overall, it's considered a useful resource for organizational decision-makers, despite some limitations.